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Buy a cheap and expensive IP, which first?

Discussion in 'Property Finance' started by bamute, 8th Jan, 2016.

  1. bamute

    bamute Member

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    Hi all, here's one for you: Intending to buying two IP's one cheap and one expensive. In view of the current lending environment which one should be bought first? Cheers for your thoughts.
     
  2. JacM

    JacM VIC Buyer's Agent Business Member

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    Hi @bamute

    What is your desired end-goal?

    Buying an "expensive property" doesn't necessarily help you get to your goal. Cashflow along the way, and/or capital growth get you there. Neither are guaranteed, but reasonable assumptions can generally be made based on current market conditions and what is scheduled to happen in the township over the next few years.

    A hugely negatively-geared property could chop you off at the knees straight away. Lenders don't care about depreciation schedules, they care about rental return and your day job income.
     
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  3. The Y-man

    The Y-man Moderator Staff Member

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    We did the cheap first and went progressively more expensive as we could use the equity growth in the first property.

    Not necessarily right or wrong - just the way we did it.

    The Y-man
     
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  4. Redom

    Redom Mortgage Broker Business Member

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    You can run the numbers before you make either decision. Your inability to split up the debt makes purchasing an expensive property much more difficult.

    In general, you will find that its easier to service 3 x 300k properties than 1 x 900k property, that have the same combined rental income.

    Why? Because with the 900k debt, you'll have to show that you can service with one lender. With the 3 x 300k, you can split it up with three different lenders with three different calculators.

    Cheers,
    Redom
     
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  5. bob shovel

    bob shovel Well-Known Member

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    Cash is king

    Why not 2 similar value in 2 areas
     
  6. JacM

    JacM VIC Buyer's Agent Business Member

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    Further to what @Redom mentioned, 1 x $900k property would have to rent for a heck of a lot each week (over $950) to be covering its costs. Few people can afford to pay such a rent, and those that can afford it won't stay long as they are able to save up to buy their own home. It is for this reason that the rental yields on pricier properties tends to be quite paltry.
     
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  7. bob shovel

    bob shovel Well-Known Member

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    What do you define as cheap and expensive? 100k and 300k? Or 400k and 800k?
     
  8. bamute

    bamute Member

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    The expensive IP will be a house to retire to eventually. Definitely a lifestyle choice rather than investment. And yes, it will be crushingly negatively geared.
    certainly multiple cheaper properties are a smarter way to go investment wise.
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    and why not consider going that way and then have an exit strategy to get your end goal ?

    ta
    rolf
     
  10. D.T.

    D.T. Adelaide Property Manager Business Member

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    People will always plan ahead to think that they want to add X type and Y type of property to their portfolio, but neither may come up. You can search re.com and all your other avenues for a while and none really tickle your fancy... maybe one similar to Y comes up first or X comes up first, you never know.

    Just know what direction you're trying to head in, buy things that take you in that direction.
     
  11. Scotty3

    Scotty3 Well-Known Member

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    Why not go the cheaper IPs for investment now for all the above reasons mentioned and then when you want to retire buy the house you want
     
  12. Bayview

    Bayview Well-Known Member

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    Having a crushingly neg geared property in the portfolio might prove to be impossible to keep the expensive future retirement property until such time.

    A life curve ball will change that plan very fast.
     
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  13. bamute

    bamute Member

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    Agree with the curve ball. DT is also right. IP's are easy enough to find but an eventual PPOR will take time. I will buy whichever comes up first but was concerned if one is bought before the other it may reduce the lending capacity so the other is not possible.
    Generally speaking is it easier to obtain a neutrally geared property and then a negatively geared property. Or a negatively geared IP and then go for a neutrally geared IP?
    Would like to hear your thoughts.
     
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  14. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    I'd avoid purchasing the negatively geared IP if at all possible.... At the current interest rates, IPs should really not be negatively geared. If it does a Sydney boom or good growth you could consider buying early... But if you are looking at investing in Darwin, I'd simply hold off on purchasing full stop till you see the market turning, or if you see an absolute steal (desperate seller).
     
  15. dabbler

    dabbler Well-Known Member

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    Depends on what you define as cheap and dear, the cheaper one should have a better income, so do that first if you need maximum servicing, if you have a set amount you will spend and can service the loan either way, then buy what comes first.
     
  16. TaylorChang

    TaylorChang Well-Known Member

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    What bank/lender looking at is your serviceability ( cashflow), so you need to be able to show you have enough cashflow to service the loan. Hence, go for the neutral geared IP first ( if you can't get the positive), then get the negative geared IP( if you can't get a neutral or positive).
     
  17. pommy

    pommy Well-Known Member

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    One reason may be to get the ideal house at todays price. Imagine having done that in sydney in 2011 with the ato subsidizing you.

    Apparently the capital gains tax can be minimised or eliminated by living there a long time... ill let the tax experts explain that one.
     
  18. bamute

    bamute Member

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    Neutral cheap IP sounds like the go first unless the perfect dream home comes up. Thanks Gockie, won't be touching Darwin for a while. With rents dropping 20% in the last year and not much in the way of new job growth Darwin will be in for a tough time.
     
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  19. mcarthur

    mcarthur Well-Known Member

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    I do agree about the interest rates now.

    But surely enforcing buying only neutral/positive means not buying at (probably) higher than about $350k. There's not much of that within 15km of the CBD in any of the major capitals. At $450k+, I haven't seen anything neutrally geared - or better - for some time.

    Of course it's possible to simply pour more cash in to make it neutral/positive, but that's cheating :p.
     
  20. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

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    Maybe a house with granny flat type deal could work? Ps. Dont forget to get a depreciation schedule done too - more tax back at tax time! :)